The Economist Intelligence Unit estimates the consumer goods market in Iran to be worth $95 billion (Dh348.7 billion), and forecasts it to grow to $166 billion by 2020. Foods and beverages is estimated to account for just under 50 per cent of the total value, a sector that is dominated by local brands.

However, unlike the UAE, the retail structure in Iran is dominated by traditional trade, which accounts for over 90 per cent of sales value. Also, with its much larger area (19 times the size of UAE) and high population dispersion, retailers could face challenges with regard to coverage and distribution.

Local retailers are outraged. According to secretary of food wholesalers union Ali Karbasi, 30% of wholesalers in one market neighborhood in downtown Tehran have shut down and more businesses are likely to go to the wall with the opening of new foreign shops such as Turkey’s BIM.

“Hyper Star, Canbo and BIM have harmed many supermarket owners and food distributors and according to some officials, sales of local trade units in this field have dropped about 50%,” Amin Rostampour, a food distributor in Tehran province, told Jam News monitoring website.

Qatar’s Abu Issa Holding to enter Iran retail market in 2017

Abu Issa Holding, one of the largest retail and luxury goods firms in the Middle East, plans to expand into Iran next year and open stores in Tehran selling watches and confectionery as the market opens up after sanctions.

The family-run Qatari firm is an example of a Gulf Arab business that could benefit from the lifting last January of nuclear-related sanctions that largely closed Iran off for years.

His company helped to introduce luxury watches and skincare products to Qatar in the 1990s. It now employs 4,000 staff and supplies over 250 brands in fashion, perfume, cosmetics, leather goods and electronics around the region.

“We will start with five or six stores in Tehran. We plan to open a similar number every year for the next five years and also in the city of Isfahan, which we expect to become a touristic hub in coming years.”

Abu Issa is using a model that other businesses in the Gulf may follow: he plans to serve as a go-between linking Middle East-based manufacturers and distributors of luxury items, often Western brands, to Iranian partners. He has spent two years establishing contact and negotiating business terms with the Iranians.

Presidential elections are scheduled to be held in Iran on 19 May 2017, However, they might be held earlier under exceptional circumstances, such as the deposition, resignation or death of the President. It will be the twelfth presidential election in Iran.

As soon as Iran’s nuclear deal with world powers took effect, Majid Zamani and his partners set up an investment boutique with the aim of tapping into the flood of foreign business they hoped would flow into the Islamic republic. Sample the FT’s top stories for a week You select the topic, we deliver the news. Select topic Enter email addressInvalid email Sign up By signing up you confirm that you have read and agree to the terms and conditions, cookie policy and privacy policy. Progress was initially sluggish as overseas investors took a cautious approach to Iran, yet Mr Zamani, a US-educated former World Bank consultant, remained confident about Kian Capital Management’s prospects. But the election of Donald Trump and his bellicose rhetoric towards Iran has triggered a surge of uncertainty and forced him and other Iranian businessmen to recalibrate their plans. They no longer expect the foreign investment to flow easily and instead are refocusing on their domestic market.

…

Business leaders also take solace from the fact that Iran’s $16.6bn deal for Boeing jets remains on track. Five days before Mr Trump’s inauguration, Iran was celebrating the arrival of Iran Air’s first new aircraft — an Airbus jet — in 23 years, a symbolic moment in a country desperately in need of investment.

There are no signs that French companies such as Airbus and Peugeot are under pressure to reconsider deals they reached with Iran in the wake of the nuclear agreement. However, it emerged last night that the oil company Total made its decision to invest in Iran conditional on the Trump administration’s renewal of US sanctions waivers by the summer.

Steven Daines, chief executive of new businesses at Accor Hotels, says the French group is not altering its plans to operate hotels in Iran. But on a visit to Tehran this week, he acknowledged that “we are finding it more difficult than anticipated because of concerns of instability both domestically and internationally [about investing in Iran]”.

EXECUTIVE SUMMARY

NEW REPORT GUARANTEE

If you purchase a report that is updated in the next 60 days, we will send you the new edition and data extract FREE!

TRADITIONAL STRUCTURE OF RETAILING IS CHANGING WITH A RAPID PACE

Retailing was one of the most dynamic industries during the last five years in Iran. Modern grocery channels such as hypermarkets expanded rapidly at the expense of traditional independent outlets, internet retailing and direct selling registered strong growth, and there were rapid changes in shopper purchasing habits. There was also considerable investment in response to high demand from the young population for modernisation. Rapid urbanisation and population density in key cities such as Tehran make Iran an ideal country for modern chain outlets.

MORE STABLE POLITICAL SITUATION RESULTED IN BETTER GROWTH IN 2016

The Iranian economy benefited from stabilisation in 2016. After mutual agreement between Iran and the West over the nuclear ambitions of the Islamic government, both suppliers and consumers felt hope for improvement in the business environment. As a result, prices were less volatile and the supply chain encountered less disruption. However, consumer purchasing power remained low due to general stagnation in the economy which made shoppers very price sensitive. This sensitivity was used widely by modern chain retailers such as supermarkets and hypermarkets to convince shoppers to switch from more expensive traditional channels such as independent groceries to modern channels with wider promotional offers.

MODERNISATION FASTER IN GROCERY RETAILERS CHANNEL THAN IN NON-GROCERY

In grocery retailers, investment was higher from both domestic and multinational retailers and thus modernisation occurred at a faster pace than in non-grocery channels. Bigger outlets, better product arrangement and better service to consumers were evident in grocery retailers in 2016. However, non-grocery specialists could not change due to lack of strong multinational investment in 2016. One reason for lower investment in non-grocery was the strong threat from the internet retailing and direct selling channels, which are used widely for non-grocery items rather than grocery products.

CONSIDERABLE FRAGMENTATION DUE TO HUGE NUMBER OF INDEPENDENT OUTLETS

The number of outlets remained high in Iran in 2016 due to the relatively low level of investment required in retailing. It is easy to register an independent shop in any retailing channel and as competition from chained outlets is still limited, such shops can achieve a reasonable turnover. Each channel contains several key wholesalers in the Tehran Bazaar that supply regional wholesalers in each city and independent outlets across the country are supplied by wholesalers in their region.

HEALTHY GROWTH EXPECTED FOR MODERN GROCERY RETAILERS

While retail prices are predicted to continue to increase over the forecast period, total sales are expected to register a healthy CAGR at constant 2016 prices. Sales growth will be fuelled by factors such as the young population and expected growth in disposable incomes. The emergence of multinational retailers will further drive growth. Internet retailing specifically is set to grow rapidly thanks to expected improvement in product availability, activities by existing brands and launches of new websites and applications.